Legal deadline ups the ante for online poker

Gambling law goes into effect, but websites say they will still operate

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The Unlawful Internet Gambling Enforcement Act comes into full effect Tuesday nearly four years after Congress passed the law under controversial circumstances. The law aims to stop online gambling by preventing credit card companies and banks from processing fund transfers for unlawful Internet gambling. But the law is ambiguous because it only loosely defines what constitutes unlawful gambling.

The concern for big online poker firms: Will banks and financial firms decide any online gaming is more trouble than it’s worth and stop facilitating transactions that have anything to do with it? This was partly the reason that last November the Treasury Department and the Federal Reserve decided to delay till today required compliance with the law by blocking regulations to implement the legislation.

“It is likely to make life more difficult for banks — especially small community banks — who will find it a great burden to police transactions that might be related to Internet gambling,” says Kevin Di Gregory, a partner at Manatt, Phelps & Phillips who used to oversee Internet gambling enforcement at the Justice Department. “There are already banks that are refusing to engage in transactions that might be questionable.”

Online poker is currently a big grey area in the U.S. The Department of Justice has for years taken the position that it's illegal and has gone after some important firms. But the U.S. online poker industry services 2.5 million Americans who play and bet $30 billion annually. Since PartyGaming exited the U.S. online poker market because Congress passed UIGEA, the market has been dominated by PokerStars and Full Tilt, a company associated with famous poker players like Howard Lederer and Christopher Ferguson. PokerStars, the biggest online gaming company in the world, said in a statement: “Since UIGEA by its terms did not alter or amend existing federal, state or tribal gambling laws, and since PokerStars’ long standing position is that it has at all times operated in a lawful manner in the U.S., June 1st will bring about no change to PokerStars’ philosophy with respect to its U.S. customs."

John Pappas, who heads the lobbying group Poker Players Alliance, says “the Earth will remain on its axis and Internet poker will continue.” Said Pappas: “The ill effects of the UIGEA have already been felt because many credit card companies have already blocked these transactions and the players have migrated to various other means to fund their accounts.” Still, the PPA has filed another petition to exempt online poker from UIGEA.

Democrat Barney Frank has been one of the most important proponents of online poker in Congress. He has introduced the Internet Gambling Regulation, Consumer Protection and Enforcement Act to regulate the business with an eye to taxing it. There is some hope from online gaming boosters that the full implementation of UIGEA today will cause the kind of havoc that will actually help strengthen support for Frank’s effort.

Perhaps, but this is a day the online gaming industry has desperately tried to avoid and defer.